Student loan dilemma and the pilgrims of 1620

Last week, the Association of College Counselors in Independent Schools (ACCIS) held its summer meeting at Macalester College in St. Paul. I participated in a panel discussion before the group of about 180 high school college counselors on “Thinking Differently About College Choice.”

You won’t be surprised that much of the discussion dealt with concerns about rising student debt burdens. After the session, Macalester President Brian Rosenberg came up and wondered whether the worries over student loans is persuading some young people to steer clear of college and others to drag out their college experience, taking periodic breaks to work, putting off the day of getting their diploma far into the future.

Rosenberg is right to worry. Student loans and financial ruin have become practically synonymous. We hear and read tragic stories about college graduates scrambling at minimum-wage jobs, weighed down by student loans totaling $100,000 or more. A strand of commentary is spreading, warning young people to steer clear of borrowing for college. The message: College isn’t worth it. Don’t join the swelling ranks of debt-slaves with a sheepskin. Or so we’re told.

Hold on. First of all, only 3.1 percent of student borrowers have a six-figure student loan debt, while 0.5 percent has debt over $200,000, according to figures compiled by the Federal Reserve Bank of Kansas City. The average amount of student loan debt across all consumers that borrowed to go to college was $24,699 at the end of 2012. The median borrower owed $13,924 in student loans. These debts are a burden to newly minted college graduates struggling to make a living in a still slow economy. But these figures are also far from catastrophic.

Here’s something else to consider: The upward trend in student loans is largely driven by the growth in the number of students enrolling in college rather than growth in the average debt level of individual borrowers. The problem with more people investing in their education is what exactly?

Few students (and their parents) can afford college without borrowing some money. Throughout our history, the American dream has often come with a loan repayment plan. The Pilgrims that settled in Plymouth Bay in 1620 were backed by London merchant bankers (essentially private equity). The Pilgrims eventually bought out their investors, paying off their debt in installments. Smart move.

College remains the best investment most people will ever make. College graduates earn some 50 percent more than their high-school-only peers. The long-term trend is for employers to want educated workers. College graduates are more likely to get jobs with benefits.

The real risk is that debt scare stories will convince students — mostly from low-income families — to avoid college. Others might delay getting their diploma until they’ve earned enough to pay for it out of pocket.

Don’t get me wrong. The current financial aid system is a disgrace. The system cries out for reform. Tragically, some students have borrowed more than they can ever repay. That said, the debt used to finance a college education will pay off for a majority of undergraduates, especially as the economy improves.

So, please, the real message of recent years is to borrow sensibly. Go to a college you can afford. Avoid private student loans. Take out as few federal student loans as practical. But remember the Pilgrims.

Chris Farrell is economics editor for “Marketplace Money.” His e-mail is cfarrell@mpr.org.